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In the first quarter of 2011, the number of small-business loan
requests that won approval from small and large banks rose to
1,294, up more than 50 percent from the 852 requests landing
approval in first quarter of 2010, according to the New
York-based small-business lending and credit service Biz2Credit.
The company defines small businesses as those with fewer than 500
employees and $6 million in revenue.

"It's coming back," says Maria Coyne, executive vice president of
business banking for the Cleveland-based KeyBank, which is the
small-business and consumer banking arm of financial services
firm KeyCorp. "The people who've been on the sidelines are now
starting to think about expanding, adding employees and adding
equipment."

And they're getting a friendlier reception from banks. Not only
have some banks relaxed their credit standards for small
businesses since 2010, demand for loans is beginning to recover.
About 10 percent of banks reported stronger demand for loans
among firms with less than $50 million in annual revenues in the
first quarter of the year, according to the Federal Reserve's
April Senior Loan Officer Survey. In the
previous survey from January, only about 5 percent of banks
reported strengthened loan demand from small firms.

What's more, certain banks are upping their small-business ante.
Last month, JP Morgan Chase announced
it would increase its commitment to lend $12 billion to U.S.
small businesses in 2011 -- a 20 percent increase over 2010.

Despite the rosier loan picture, outside economic shocks caused
by everything from Mother Nature's continuing pummeling, higher
gas prices and the billowing national debt could certainly throw
off any kind of small-business recovery. Here are three lending
predictions from Coyne that just may come to fruition during the
second half of 2011, barring another national catastrophe.

Demand for loans will pick up.
"Through 2008 and 2009, you saw a lot of companies
deleveraging. We also saw a lot of companies failing. The
survivors got smart about managing expenses through the crisis.
And they figured out where they're making money and where
they're not. But now they know the only way up is through
revenue growth. People are actually borrowing to add employees
and boost their sales staffs.

"They're also taking advantage of existing opportunities.
Perhaps they've explored other ways to sell their products or
services or expand into new markets and now they need to borrow
to bolster their inventories. Maybe they're taking advantage of
existing tax credits to purchase heavy equipment that can help
a company be more efficient. Or they're buying the building
where they used to rent to cash in on lower interest rates.
Some businesses are even snapping up other businesses for a
song."

The secondary market for small-business loans will
continue to recover.
"So far, the secondary market -- that is, the aftermarket where
small-business loans are resold to investors -- appears to be
moving freely again. Small Business Administration-backed
loans, which come with a guarantee of 75 percent to 85 percent,
for example, have come back pretty robustly. The market for
re-selling small-business loans was almost nonexistent during
the downturn when investors ceased buying for fear of defaults.
Having a free flowing secondary market, however, bodes well for
small businesses because as banks sell-off the loans on their
books, they tend have more cash to make added loans."

Reduced credit scores will continue to cause
problems. "During the downturn, many business
owners' personal credit scores suffered, as did the value of
their collateral. And since business sales likely also fell
off, their cash flow got pinched. So, virtually everything that
goes into an underwriting decision had changed. That's what
made it harder for people to qualify for loans. People's
lingering credit-score problems may continue to make it
difficult for them to get loans. But the thing for borrowers to
be aware of is what caused the drop in their scores and to be
able to explain how the situation's been remedied. Over time, a
score will correct itself."